Amro Saleem AlAmaren, Mustafa Saeed Alathamneh, Ashraf Mohammad Salem Alrjoub
The aim of this study is estimating beta and the security market line CAPM test for Dow Jones 30 during the Period (2015-2019). The study discusses the definition of CAPM. Also, it discusses the study of CAPM and estimating beta; it then explains tested the CAPM model by using two passes first-pass regression and second-pass regression. Moreover, in first pass regression we calculate the excess return, beta , alpha αi, and R-Squared as regressed on S&P 500 for S&P 500 and companies, and In second pass regression as it was shown before in this study if CAPM is valid, then γ0 should equal zero and γ1 equal excess return.
The study uses the financial models and equations estimating beta and the security Market Line CAPM test. And the result show the CAPM, the average excess return equal 0.005809 (0.006658919 - 0.00085028) which is not equal to γ1 also γ0, not equal zero. Furthermore, the t-test for beta is not significant. As the result, the test of SML failed, so the CAPM is not valid and not describe the relationship between the excess return and portfolio β in the study. So the CAPM is not valid and the model does not clarify the result which came out, and we cannot explain the relationship between return and the sensitivity of stock in the portfolio.